There’s no such thing as a free lunch

With $4 billion ready to fly out of the government’s till and into the hands of private businesses, it’s easy to understand the enthusiasm which the government’s Broadband Stimulus programs (i.e., the RUS/NTIA BIP and BTOP, about which much has been written here on has generated. But hold on a minute. Sure, the thought of “free” money for building broadband facilities is nigh on irresistible – but let’s not forget that there’s no such thing as a free lunch.

In fact, the strings that are attached to BTOP grants may be more like thick steel cables, or even chains. Potential applicants should weigh the benefits of receiving a BTOP award against the obligations that accompany such awards.

Our colleague Joe Di Scipio has already provided a summary of some of the post-award requirements in store for BTOP and BIP winners. As he notes, NTIA imposes limits on the sale or lease of award-funded facilities. (Recently, RUS has confirmed to us that it may be willing to consider permitting a sale of award-funded property sooner than 10 years out, as long as the grantee submits a written request with “all pertinent information”.) But it appears that, in addition to those limits, NTIA/RUS also expect awardees to plow any income generated by their project back into “the funds committed to the project by RUS or NTIA and the recipient”. As we understand this, it means that it will be difficult, if not impossible, to pocket any profits, at least in the short term. Of course, it’s probably unlikely that the system would be spinning off profits in the first three years anyway, but still, it’s good to keep this in mind.

Joe also described some, but not all, of the regular (“regular” here meaning “quarterly”) reporting requirements. Over and above those he mentioned, BTOP grantees are also expected to provide regular reports on a long laundry list of operational minutiae. What kind of minutiae? How about “total and peak utilization of access links”, or “total and peak utilization on interconnection links to other networks”, or “Internet protocol address utilization and IPv6 implementation”? Or “average end-user and middle mile megabit per second increase”? More importantly, grantees will have to report certain business information such as: the terms of any interconnection agreements entered into;  traffic exchange relationships (e.g., peering) and terms; the number of households and businesses subscribing to new and existing broadband service; advertised and averaged broadband speeds; and the price of the broadband services.

There are lots more such categories of reportable information where these came from, but you get the idea. These regular reports will be made available to the public. (While you can always request that your reports be kept confidential, there is no guarantee that your request will be granted.)

In addition to the reporting chores, a BTOP award also invites the government into various aspects of the awardee’s business. Award winners will have to get prior approval for changes in budgets and key personnel and use of “subgrantees”. They’ll be subject to federal procurement standards (including a preference for competitive bidding for subcontractors) and federal cost principles (i.e., costs must be allowable, reasonable and allocable). And their ability to determine the wages of their workers (and their subcontractors’ workers) will not be entirely within their discretion: any project using Recovery Act funds requires the payment of not less than the prevailing wages for "all laborers and mechanics employed by contractors and subcontractors on projects funded directly by or assisted in whole or in part by and through the Federal Government.” Doubtless there are, or will be, other fine print constraints in such operational areas.

And to keep everybody honest, all grantees are required to comply with still more regulations set forth in OMB’s Interim Final Guidance for Federal Financial Assistance. Grantees that expend $500,000 or more of federal funds during their fiscal year are required to submit an organization-wide financial and compliance audit report. The audit must be performed in accordance with Government Auditing Standards (check them out here, among others).  Awardees are responsible for ensuring that sub-recipient audit reports are received and for resolving any audit findings. 

The fun doesn’t necessarily stop there: Grantees will also be subject to random compliance/performance audits by the Office of Inspector General of the Department of Commerce.

Applicants should also be aware that, in their applications, they will be coughing up significant amounts of proprietary information. For example, explanations as to why proposed service pricing is affordable compared to other local providers . . . and detailed proposed network diagrams and build-out timelines . . .  lists of vendors . . . detailed budgets . . . subscriber estimates . . . Pro Forma 5-year financial forecast and assumptions. All of this (and more) will be reviewed by at least three volunteer “peer reviewers”. While the NOFA encourages applicants to identify and label any confidential and proprietary information contained in their applications, and while RUS/NTIA may make a bona fide effort to keep confidential material confidential, remember this: the Recovery Act requires substantial transparency, and various mechanisms (the Freedom of Information Act comes immediately to mind) exist by which confidentiality claims may be thwarted. In other words, while confidentiality may be requested, there is, again, no guarantee that it will be accorded.

Similar concerns exist regarding the requirement that grantees report certain information for use in connection with the separate State Broadband Data and Development Grant Program.  This would include reporting data on the availability of broadband service within the service area and the residential average revenue per user (ARPU). Some parties have already expressed concerns about having to report ARPU figures.

Finally, let us not forget about the “net neutrality” limitations described by our colleague Mitchell Lazarus here

There is unquestionably a huge amount of upside potential here singing siren songs into the ears of would-be applicants. While we encourage all would-be applicants to take advantage of the opportunities which the stimulus programs present, we caution them that, as Circe counseled Ulysses, even the most alluring siren songs can lead to unpleasant and regrettable results.